Self Funded Plan

[Guest andyj]

We have 79 employees with about 50 on our medical plan. We are located in the state of Florida. We are considering a self fund plan with stop loss insurance. What are the downsides to this type of plan?

Are we large enough for this to make sense?

We have a one person that has major medical problems. What effect will this have?

[KIP KRAUS]

Self-insuring 50 employees is too risky. There is absolutely no claims credibility to a group this small.

In addition, even if you can get someone to write stop loss coverage for a group this small the premiums will be astronomical and they will laser out the person with the major medical problem.

If you are looking to contain costs see if you can get a plan that has more cost containment features such as higher deductibles and co-payments for a starter.

[Guest ConceptCorner]

I think you are way too small for a true "self-funded" plan. You might want to consider the following approaches.

One: Use of a "minimum premium" plan. A min. prem plan is offered by such companies as Principal and I think Guardian. It is really just a premium game. It is an insured plan that charges you roughly half of the premium until you have claims. Then, they ask you for the additional premium if it is needed. The risk is that these plans potential liabiltiy is about %5 per than if you had just paid the premium.

Two: You can carry a high deductible medical plan such as $2500 or higher and establish a Section 105 MERP (medical reimbursement plan). This can be establised by most TPA's. It is a document that allows you to reimburse employees for the amounts not covered by the health plan. For example, you could raise the copay to $30, put a deductible in front of the Rx card, raise the deductible. I would also drop dental if you have it. Then calculate the premiums savings. It should add up nicely in most situations. Then with the 105 plan you can pick how to reimburse with the savings. You could tell employees that you will reimburse all uninsured expenses at 80% up to $2000. The employer liability would be $1600 per employee. Of course most employees would not use all or any of the reibursement in a given year so the employer retains the savings.

Three: Using the same concept above, you could establish an "Employer-Funded FSA" plan. In this senario the company placed some or all of the premium savings into the employees accounts. Using a TPA that offers a FSA debit-card makes the idea even more appealing. Employees get a "bucket" of money each year to spend on qualified expenses each year. Any unused money comes back to the employer by way of a forfeiture.

Lots of ways to structure but you are way too small to self-fund in the traditional way.

[KIP KRAUS]

Concept Corner makes some excellent points, however it has been my experience that group insurers including Principal and Guardian will not offer minimum premium or any other financial arrangement for a group of 50 participants. In addition, a minimum premium plan is typically an experienced rated plan and a 50-employee group is not a good candidate for an experienced rated plan.

Shop the plan or redesign it to be more cost effective.

[Kirk Maldonado]

I think Kip and ConceptCorner have provided some valuable advice (that I agree with).

I once had a client that adopted a self-funded plan, even though it had less than 50 employees. One employee with a serious medical condition can (and did cause my client) major league problems. Believe me, you don't want to to there!

[mroberts]

As with the others, I agree that you are way too small to be self-funded. I really don't recommend it to groups of any less than 300 lives, unless the demographics are extremely favorable.

A couple options that might work are a high deductible plan and possibly going with a carrier like Great West. Now, Great West is not usually my #1 recommendation, however, if the network is good and you feel that the cash flow advantage would be worthwhile for you, you might want to give it a shot.